Bauer v. Gylten: Federal court authorizes ERISA reimbursement claim for constructive trust where funds are identifiable and traceable.

John M. Russell¹

In Bauer v. Camrud, Maddock, Olsen & Larson, Ltd. , 2002 U.S. Dist. LEXIS 7246 (D.N.D. Apr. 22, 2002), the federal court ruled that an ERISA plan fiduciary may pursue a reimbursement claim in the form of a constructive trust where the funds at issue are identifiable and traceable. In Bauer , the court had granted the ERISA plan's motion for summary judgment on its reimbursement claim prior to the Supreme Court's ruling in Great-West Life & Annuity Co. v. Knudson , 534 U.S. 204, 122 S. Ct. 708 (2002).

After the Supreme Court released Great-West Life , the Bauer court asked the parties to provide additional briefing to determine whether the plan fiduciary was seeking equitable relief. The plan had filed an amended complaint requesting the creation of a constructive trust over the funds at issue in light of Great-West Life .

The Bauer court noted that the holding in Great-West Life was "fairly limited" and went on to rule that the Supreme Court's decision was not a bar to the plan's reimbursement claim:

Of particular relevance to the instant case is the Supreme Court's recognition that permissive equitable relief could include restitution, so long as it was "in the form of a constructive trust or equitable lien where money or property identified as belonging in good conscience to the plaintiff could clearly be traced to particular funds or property in the defendant's possession."

Id. at *8, quoting Great-West Life , 122 S. Ct. at 714. Pursuant to a stipulation, the defendant plan participant had agreed to preserve the funds, "making the money sought traceable to particular funds in the defendants possession." Thus, the court concluded that the plan was seeking equitable relief.

The Bauer court rejected the defendant's argument that a constructive trust was inappropriate because he was not unjustly enriched or had not done something wrong. In short, the court decided that it could not "overlook the fact that the Supreme Court specifically suggested that transfer of a constructive trust is equitable relief under the rule of Great-West."

The Bauer court's decision highlights the importance of ensuring that the funds in question are preserved. As long as the funds are preserved by the defendant (or the defendant's attorney), the district courts since Great-West Life have authorized the imposition of a constructive trust as equitable relief under ERISA.

[1]John M. Russell is a partner in the Memphis, Tennessee law firm of Lawrence & Russell, LLP, and represents employers and health plans in subrogation and other employee benefits and employment matters and related litigation in state and federal courts throughout the United States. He represented BlueCross/BlueShield of Illinois in the Alleman case. He can be reached at johnr@lawrencerussell.com .